Dissident Voice

August
2, 2003

For
the first time China has attended the G8 summit although it downplayed calls to
join the elite body noting quite correctly that it was not yet ready; gross
data aside, China is still a developing country. China is far more than the
faces of the international city of Hong Kong, Shanghai, which will host the
World Expo in 2010, and Beijing, which will be the venue for the 2008 Summer
Olympics. China is now the world’s second largest economy and when considered
in purchasing price parity (PPP) it is already number one. China is also the
world’s most populous country so when the GDP is divvied up, the per capita
income is a relatively low $4600 PPP. This is less than Brazil or Venezuela and
roughly equivalent to Paraguay.

Yet
unlike these South American nations the Chinese economy continues to churn out
stellar numbers. The first quarter of 2003 saw China grow at a staggering 9.9
percent. SARS is likely only to make a small dint in this seeming economic
juggernaut.

Some
pundits have touted China as a successful economic model antithetical to the
Washington Consensus. Indeed the state has dirigistically financed mega
projects such as the Three Gorges Dam, Qinghai-Tibet railway link, south-north
water transfer, west-east power transmission, and west-east gas transfer. As
such China is hardly an advertisement for neoliberalism.

Chinese
academic Han Deqiang, a professor of economics at Beijing University of
Aeronautics and Astronautics has been an outspoken critic of what he sees as
the predominantly neoliberal path the Chinese economy has taken. Mr. Han though
does acknowledge Keynesian elements in the economy such as lowering interest
rates to encourage spending. Says Mr. Han: “When I emphasize neoliberalism, I
mean joining the WTO, attracting Foreign Direct Investment (FDI), and belief in
the market economy. These are used as two hands to serve the new upper classes:
the bureaucratic class and the comprador class.” The bureaucratic class is the
class that arrogated powers to itself after the revolution and undermined
socialism. The comprador class is the class of Chinese serving as
intermediaries for foreign businesses, having benefited from the ongoing
opening of the Chinese economy.

Mr.
Han is also a staunch opponent of globalization as understood by the IMF, WB,
and the WTO. Consequently he argues against Chinese membership in the WTO
because Chinese firms simply aren’t strong enough to compete internationally.
He cites the example of American carmaker General Motors which “has annual
revenue comparable to the total annual gross revenue of China’s first 500
enterprises, and the average gross revenue of China’s first 500 enterprises is
only 2% of that of the top 500 in the world.” Chinese companies lack capital,
advanced technology, developed markets, and name brand recognition, the latter
of which means reduced profits and increased costs.

Noam
Chomsky, described as “the leading intellectual figure in the world today in
the battle for democracy and against neoliberalism,” explains how the
Washington Consensus imposes a global order on other countries. It is a
prescription that opens up other, mainly developing economies, for exploitation
by so-called advanced capitalist economies. Relatively successful economies
such as those in Europe and East Asia did not follow the neoliberal program
whereas those countries that did, like Latin America and Russia, were
devastated. Mr. Chomsky points to a World Bank report that says, unlike Latin
American obedience to market dictates, China was “the most interventionist and
price-distorting government of all.” History strongly suggests this
governmental management is a better path. Historian Paul Baroch, cited by Mr.
Chomsky, claims “there is no doubt that the third world’s compulsory economic
liberalism in the nineteenth century is a major element in explaining the delay
in its industrialization.”

According
to Mr. Han, opening China up to outside competition will result in many
national companies being taken over or going bankrupt. This will result in
rising unemployment and the increasing vulnerability of banks to bad debts.

Particularly
at risk are the peasants. These 900 million people form the bulk of China’s
population. Agriculture provides a subsistence living for many of these rural
families. But what is happening here is not competition according to the
neoliberal prescription. The US government heavily subsidizes its farmers and
the 2002 Farm Bill signed into legislation by President George W. Bush
massively hiked those subsidies further. Third World countries don’t have the
capital to subsidize their farmers so free trade is violated in principle.

So
asks Mr. Han, why was China so hell-bent on joining the WTO? Whereas WTO
membership is hardly noteworthy in the west, in China the media lauds Chinese membership
with much fanfare and indeed it is a prideful event for most Chinese.

It
is generally thought that WTO membership would accelerate the reform and
opening-up processes. Chinese companies would be energized to compete
internationally and develop into an advanced economy -- an economy that would
merit G8 membership. Long Yongtu, chief negotiator from the Chinese Ministry of
Foreign Trade and Economic Cooperation played down the immediate prospects
saying “WTO entry will neither bring in great disaster … nor bring forth
economic miracles overnight ... [but] on the whole, advantages outdo
disadvantages.”

Mr.
Han argues that institutional considerations drove China to WTO membership.
Workers and small businesses were under-informed and under-represented and had
little input into the political machinery. The government-appointed leaders of
the large SOEs stood to gain from WTO entry and were nevertheless beholden to
their political masters, so endorsement of WTO membership was a foregone
conclusion.

Officials
have since become aware of their power and consequently “moral constraint” has
disappeared to be replaced by the law of the jungle. States Mr. Han: “Day after
day, no person cared about the integral and long term benefit, every one, from
top to bottom, even workers, learned to use power for himself, and state-owned
enterprises became the object shared by all kinds of forces.” This internal
lawlessness has led to the demise of the SOEs. The top skims off the profits
for selfish reward while the peasants fall further behind.

Although
growth has been impressive in China there have been blips in the economic
picture. Mr. Han describes one setback as a period of overproduction at the end
of the 1980s featuring extreme competition. A “triangle debts” crisis had
emerged. For Mr. Han, the solution was to expand consumer demand thereby
absorbing the excess inventory. The wealthy elites couldn’t abide by this and
sought instead to draw in more FDI to shore up the growth. It worked; China
maintained high growth rates based on the FDI and trade. The FDI concentrated
in high value-added industries and labor-intensive industries; other industries
suffered.

Growing Income Inequality

Gene
Chang at the University of Toledo wrote that the income gap in China is very
high but that “there is no effective way to reduce the Gini coefficient,”
which measures the concentration of elements. His long-term solution was to “accelerate
urbanization in the short run and to promote the growth of the urban sector in
the long run.” Mr. Chang argues that the major reason for the disparity is the
urban-rural income gap and that income redistribution won’t work and would be
harmful to the Chinese economy. Mr. Han responds: “It's a typical prescription
for the Chinese future which takes the US as the model. But I don't think it
could be suitable to China. If the current tendency lasts, China would only
become a peripheral country in the world economic structure. The urban areas
have no ability to absorb so much rural labor, not to mention the fast
decreasing resources in the world. Redistributing income and advocating a
relatively austere life style, is the only way out for China, and also for the
world.”

Chinese
academia, however, is swayed by the religion of Adam Smith’s “invisible hand”
and its modern neoliberal version. Mr. Han wonders about people in this system,
where economic Darwinism ensues and the law of the jungle prevails. Adam
Smith’s The Wealth of Nations provided the rationale for colonial
exploitation: “The colony of a civilised nation which takes possession either
of a waste country, or of one so thinly inhabited that the natives easily give
place to the new settlers, advances more rapidly to wealth and greatness than
any other human society.”

China
knows first hand the legacy and humiliation of colonialism. Mr. Han in his book
Collision: Globalization Trap and China’s Reality Choice depicts how the
trade agreement between the Kuomingtang and the US governments saw China
flooded with cheap goods. This led to the closure of tens of thousands of
Chinese factories and played a hand in the eventual downfall of the
Kuomingtang.

As
for the economic path China is embarking upon, Mr. Han forecasts: “In a short
term, the current model may work. But in a long time, for example 7-10 years,
it will fail, as in Indonesia or Thailand or Argentina.” Eventually Chinese
sovereignty will be threatened as China winds up as “the production base of
transnational corporations.” In the meantime the Chinese proletariat is
threatened with the loss of low-wage jobs. Those who have already lost their
jobs face the dog-eat-dog mayhem of increasing competition for jobs in a
so-called socialist state that has all but gutted the social system. It is a
neoliberal paradigm already known to many Latin Americans and Russian.

The
late Chairman Mao Zedong would presumably have been aghast at the growing
disparity in China. He foresaw: “To make China rich and strong needs several
decades of intense effort, which will include, among other things, the effort
to practice strict economy and combat waste, i.e., the policy of building up
our country through diligence and frugality.”

Kim Petersen is a China-based teacher and
writer on progressive issues. He can be reached at: kimpetersen@gyxi.dk